How to Explain Cash Flow and Liquidity in English

Cash flow and liquidity are central to finance conversations, but they describe different things. Cash flow is about the movement and generation of cash over time; liquidity is about the ability to meet obligations when they fall due.

Describing cash generation

• “The business continues to generate strong operating cash flow.”
• “Cash generation weakened during the first half.”
• “Free cash flow remained positive.”
• “The company converted a high proportion of EBITDA into cash.”
• “Cash conversion improved materially in Q3.”

Generate cash and cash generation are useful professional collocations. They are normally more precise than saying the company made cash.

Explaining why cash flow changed

• “The improvement was driven by stronger collections from customers.”
• “Cash flow was affected by a temporary build-up in inventory.”
• “Working-capital outflows reduced operating cash flow.”
• “Higher capex resulted in weaker free cash flow.”
• “The timing of supplier payments created a temporary benefit.”

Explaining the difference between profit and cash

A company can report profit while cash flow is weak, or generate strong cash despite a modest accounting result.

• “The business remains profitable, but cash conversion has deteriorated.”
• “EBITDA increased; however, the improvement has not yet translated into cash.”
• “The difference largely reflects higher receivables and inventory.”

Talking about liquidity

• “The company maintains a strong liquidity position.”
• “Liquidity remains adequate for the current operating plan.”
• “The group has significant undrawn committed facilities.”
• “The liquidity buffer has reduced following the acquisition.”
• “Near-term liquidity is tight but manageable.”

Words such as strong, adequate, comfortable, constrained and tight communicate different levels of comfort. Choose them carefully.

Discussing funding and refinancing

• “The company has no significant maturities over the next 12 months.”
• “A large portion of the debt falls due next year.”
• “The refinancing requirement is manageable under the base case.”
• “The group is exploring additional committed facilities.”
• “The facility provides sufficient liquidity headroom.”

Discussing working capital

• “Working capital increased because receivables grew faster than revenue.”
• “The business released cash from working capital.”
• “Inventory days improved during the quarter.”
• “Longer customer payment terms have increased the working-capital requirement.”

A clear explanation for a meeting

“Profitability improved during the year, but operating cash flow was weaker because more cash was tied up in working capital. Receivables increased following strong Q4 sales, and inventory was temporarily higher ahead of the new product launch. We expect part of that working-capital build to unwind in the first quarter. Liquidity remains adequate, with $15 million of undrawn committed facilities.”

Common language mistakes

• Using cash flow and cash balance as if they mean the same thing.
• Calling every source of available funding cash rather than distinguishing cash, committed facilities and other liquidity sources.
• Saying cash flow increased without identifying whether you mean operating cash flow, free cash flow or another measure.
• Assuming higher profit automatically means higher cash flow.

For professional English, connect the cash movement to its cause. Instead of simply saying cash flow fell, explain whether the driver was working capital, capex, debt service, tax, acquisitions or another factor.